Ripple v. SEC_ How Ripple LOSES and What That Would Mean For Your XRP! Att'y Jeremy Hogan Gives

Hello and welcome to Legal Briefs. This is the XRP depression episode, and I call it the depression episode because it is finally time to address the Ripple v. SEC doomsday scenario. So today, with everything that has come out in the case so far, we answer the question, how in the heck does Ripple lose, and what would that mean for the XRP that you might own? Okay, we are going into uncharted doom and gloom territory here. Hold me tight, we'll get through this together. Welcome back, and yes, for the 75 people who dislike my normal videos, this is your chance to shine. Smash that like button now because we are going to talk SEC victory and doom. For the retail XRP holder, I know that's your nasty little secret fantasy. You know who you are. So let's start by answering the big question. Is it possible? Can Ripple lose? And I say this to you bluntly because you are grown men and women. Yes, Ripple can lose. Most of this case will be decided by one person, the judge. And whenever that's the case, almost anything is really possible. So let's get to it, and for an analysis of how Ripple loses, let's start at the beginning, which is the lawsuit. The SEC brought this action almost 10 months ago, and it has been consistent on its theory of the case. A theory of a case is the most basic premise, kind of like the spin that a lawyer puts on a case. In a murder defense case, your theory of the case might be that someone else killed the person and so your client didn't do it. Or it might be that your client killed in self-defense, something like that. Now, in the Ripple versus SEC litigation, the SEC's theory of the case is that it's a simple securities violation analysis under Howey. That there's nothing special about this case. It's just another run-of-the-mill legal sale of a security case in which the court must simply look at how Ripple marketed and sold XRP. That's the theory of the case. And in order for the SEC to win this case, the judge is going to have to buy into that theory of the case. And the first problem that the SEC ran into in their premise of the theory of the case is Ripple's fair notice defense, which is stated by Ripple here in its motion, quote, Ripple did not have and plain to fail to provide fair notice that its conduct was an evaluation of law and contravention of Ripple's due process rights, close quote. Now that defense continues on to talk about how for years XRP was traded without a peep from the SEC, that it was deemed a currency in 2015. And it also talks about the 2018 Hinman speech where he stated that either is no longer a security. All of these take away from the SEC's theory of the case. And at this point in the litigation, we've had about 20 other fair notice problems for the SEC in discovery, including two vocal SEC commissioners who have gone on the record more than once saying that there is no clarity in the digital asset space, including this article from just last week by Commissioner Peirce, in which he turns the crypto is the Wild West narrative on its head and headlines in Roman numeral two, quote, Are we enforcing rules by settling or settling for ambiguity? And obviously, her conclusion is that the SEC is settling for ambiguity. So this fair notice defense has really sprung a leak in the SEC's boat. And the SEC has tried to plug the leak by filing a motion to strike the defense altogether. And that motion was filed back in April. And the judge has still not ruled on it. Looking at page 23 of the motion to strike the SEC's basic argument is, quote, No federal court has ever accepted the argument that the term investment contract, as used in the Securities Act or as construed by the Supreme Court and how he fails to provide persons of ordinary intelligence notice of what is prohibited in any context. How in his progeny provide clear, explicit standards that courts have applied for decades. Close quote. Again, always remember that the theory of the case is that this is a simple standard how we test case. And if the SEC can get Judge Torres to bite on that argument and strike the fair notice defense, a lot of the stuff that has come out in discovery these last six months simply goes away. It becomes irrelevant. Most of the relevance of the Hinman speech gone. Commissioner Peirce's statements of the lack of clarity in the crypto market gone. The fact that XRP was deemed a currency before gone, all of the videos that die and other Twitter sleuths have come across recently, basically gone from the lawsuit. And so a big step now, not the final step, but the first step for the SEC is to have the fair notice defense stricken. So be on the lookout for a ruling on that motion. It will be the next major motion to be ruled on. And it's very important. OK, that having been dispensed with, we move on to the meat of the case. And the issue is whether XRP was sold as a security. And this is thing where things really get more complicated, but also more interesting. Now, there are two scenarios to watch out for here. First, recall what the SEC is seeking in this lawsuit. And that is contained in the lawsuit's prayer for relief. To summarize, the SEC wants just two things. One, it wants to stop Ripple from selling any more XRP. That's Roman numerals one and three. And two, it wants Ripple to pay money and fines, specifically to pay almost one point four billion dollars with a beat. That's Roman numerals two and four. But really, the lawsuit is more broad reaching than that, because the SEC's lawsuit is really an argument that XRP is a security per se or in and of itself. And that is a big deal. As Attorney John Deaton points out in his motion to intervene, quote, the complaint asserts that all sales of XRP constitute violations because XRP itself is a security. Close quote. Attorney Deaton then points out certain parts of the SEC lawsuit that make it clear that implicit in the SEC lawsuit is the idea that XRP is inherently a security. That being said, again, there are two scenarios to look out for here. The first scenario, which leads to an SEC victory, is what I call the marketing path to victory. And this seems to be where the SEC is focusing its efforts. This also would be the better scenario for you, and I will explain why in a second. In this marketing scenario, the judge finds that the evidence is much like in the Telegram case. The Telegram case was a case brought by the SEC back in 2019 against Telegram, which was at the time developing a blockchain project called the Gram token. In finding against the Telegram company, the court held that, quote, at the time of the offers and sales to the initial purchasers, a reasonable investor expected to profit from Telegram's continued support for Grams and the underlying ton blockchain through the distribution of Grams by initial purchasers to the public. Close quote. So in its marketing argument, the SEC is looking for statements by Ripple, which lead the court to the conclusion that a reasonable purchaser of XRP would expect a profit from Ripple's continued support of XRP. And in its recent motion to the court, the SEC says it has found things in Ripple's videotaped meetings and such that help its case. And just to give you one example, this is actually quoted from the SEC's amended complaint, and it's from 2013 and it's Ripple's chief tech officer, David Schwartz. And here it is. Now, this is from a chat board in May of 2013, quote, as a corporation referring to Ripple, we are legally obligated to maximize shareholder value with our current business model. That means acting to increase the value and liquidity of XRP. We believe this will happen if the Ripple network is widely adopted as a payment system. We are pursuing multiple avenues at once. One would expect increased demand to increase price. Close quote. So that's the kind of thing that the SEC is trying to find, and it will want more recent examples and examples that were disseminated more widely and more formally. But that is one path to victory for the SEC. But as I just said, it's not the worst case scenario. This is actually the better scenario because the marketing path to the SEC victory hinges on a perceived or marketed investment contract between Ripple and XRP holders and not anything inherent to XRP itself, just how XRP was sold by Ripple. Now, this first scenario would be limited essentially to disgorgement damages and perhaps injunctive relief. But could it amount to a finding that XRP is somehow inherently a security? In fact, this scenario would be more akin to the Kik Interactive lawsuit and the Kin token. Now, the Kik Interactive company was sued by the SEC in 2019 for the sale of unregistered securities, and it lost in 2020. The loss did enjoin Kik Interactive from selling the Kin token without SEC registration, and it also included a fine. But the judge's ruling did not contain a finding that the Kin token was somehow inherently a security or otherwise limit its trading. In fact, the day after the judgment was entered, the Kin Foundation released a statement. And here is a summary of it, quote, In a nutshell, Kik is going to be OK. Beyond the monetary fine, Kik's assets are still Kik's property, including its remaining treasury, its Kin reserves and all of its intellectual capital. With this settlement, Kik is able to continue active development on the open source Kin SDK and their new wallet app code. Concurrently, the future of the Kin Foundation is not adversely affected. The SEC has not asked to register Kin as a security and didn't impose trading restrictions on it. And yes, indeed, if you look up the Kin token on CoinMarketCap, there it is still trading away like most other coins. The big question in this first scenario are twofold. One, can Ripple continue its business after paying the discoursement judgment and without potentially being able to sell XRP, except to perhaps accredited investors? And two, will the exchanges feel confident enough by the way that the judgment is worded in order to relist XRP? Now, your guess is as good as mine on that. But this is definitely the better scenario because the second scenario is a tidal wave scenario and it hinges on what is currently going on in the litigation with Expert Discovery. The bigger concern, in my opinion, is a judgment against Ripple based on the decentralization or lack thereof of the XRP ledger. And the SEC hasn't really focused the court on this argument and doesn't seem to want to make it the focus of the litigation, probably because it's a losing argument for the SEC. And it doesn't really mesh with its theory of the case. But it is much more dangerous to you. The argument here is that the XRP ledger is centralized and maybe so reliant on Ripple that XRP is per se or kind of in and of its nature a security, meaning that it's not just how Ripple sold it, but just because it is that it's a security. Now, you might not even think this is even arguable. But my very own Twitter friend, Stephan Huber, sorry if I mispronounce your name, found this article out of Germany just recently, which argues that exact same thing. Quote, one of the leading German business journals writes that the XRPL is centralized because all payments are controlled and checked by a group of 35 people. Oh, my dear God. Smile the face, smile the face. The oh my dear God part was actually Stephan's own comments. The German article actually said, Ich bin ein Idiot, but not too much of an idiot, because this is exactly what Attorney Deaton is concerned about in his motion to intervene when he points out, quote, Additionally, the SEC asserts the property held by XRP holders is a security because the very nature of XRP itself makes it the common thread among Ripple, its management and all other XRP holders. Close quote. In any case, there has never been a crypto case in which this has happened that I'm aware of. And I believe I've reviewed every SEC crypto case out there. So this would be uncharted waters. But the effect of any order, which even alludes to XRP being inherently a security or carrying with it some kind of security designation, would be absolutely devastating. An opinion like that would have an almost instantaneous chilling effect on the markets, freezing liquidity and leaving XRP holders with bags, not bags of cash, but bags like luggage that sit in your closet, unusable and unused as a pandemic locks down travel. Now, in legal jargon, it would suck. And to make matters worse, if liquidity in the USA dries up, Ripple's main business model dries up here and it's off to Japan for Ripple, where at least it feels the yokoso. So to summarize, the path to SEC victory looks somewhat like this. Sorry, that was a different but similar invasion. No, the SEC path starts with a dismissal of the fair notice defense. I expect since discovery is closing early November and then summary judgment briefing can begin after that, that the judge will need to decide that motion before or shortly after November 9th. Next, look at the SEC's filings and take note of how many comments to retail purchasers the SEC finds in discovery, which suggests that Ripple was working towards increasing the value of XRP. A lot of comments like that would be mildly good, by which, of course, I mean mildly bad. And finally, for some real depressing stuff, stuff that you can read while drinking a stiff whiskey, while listening to country music with your dog, watch the pleadings and look out for how good the SEC's technical experts are in arguing that the XRP ledger is centralized, not built out and with no utility. That is the doomsday scenario of this case. That was a tough video. First drink is always on me. Thanks for watching. And then are we enforcing rules by selling or settling for ambiguity? I speak in English. Telegram, which was developing a block print, a block, a block print, it was developing a block painting project, which was at that time developing a block chain project. Can't say block chain against Telegram, which, as it were, my mouth not functioning. That's a map of the German invasion of France. Are you sure people are going to get that? Hey, our viewers are super smart.